E-COMMERCE: Ant Trumped in US, Alibaba Reorganizes Video

Bottom line: Ant Financial will counter bid
for MoneyGram, following a surprise rival bid for the company,
while Alibaba Pictures' absorption of the former Youku Tudou looks
like a logical consolidation of Alibaba's filmed entertainment
assets.

Ant's MoneyGram offer attracts rival bidder

Two of Alibaba(NYSE: BABA) founder Jack
Ma's biggest endeavors outside his core e-commerce business are in
the headlines, led by a counter bid for a US financial services
company his Ant Financial is trying to acquire.
That particular deal has a US company called Euronet
Worldwide announcing a bid for MoneyGram that's 15 percent
higher than Ant's own $880 million bid made back in January. The
other news is slightly more mundane but still significant, and has
Ma's Alibaba moving its Youku Tudou online video
service into its separately listed Alibaba
Pictures (HKEx: 1060) filmed entertainment unit.

Both of these stories reflect Ma's desire to move outside his
original e-commerce business and into other areas, something that
China's major Internet companies are all trying to do to some
extent. Ma's biggest success by far is with Ant Financial, which
was originally part of Alibaba and whose core asset is
its Alipay electronic payments service.
Entertainment has been more problematic for Ma, and this latest
reshuffle shows it's still trying to figure out what the future
landscape will look like for video entertainment products and
services.

Let's begin with the Ant Financial news, which could come as a
major setback for the company as it attempts to make some baby
steps outside China. Ant's Alipay is already expanding its
footprint in Asia by moving into various markets like South Korea,
but is still mostly targeted at Chinese traveling to those
countries. It launched the bid for MoneyGram, which operates an
electronic money-transferring network, back in January, in an
attempt to pick up an asset with a more international customer
base.

Now it seems a fly has landed in the ointment of that deal,
following this new bid by Euronet at $15.20 per share, sharply
higher than Ant's original $13.25. (English article) MoneyGram shares jumped 25 percent on
the news to $15.77, indicating investors believe Ant or perhaps
another buyer is likely to make a counter bid that's even
higher.

Euronet is trying to use some scare tactics to make its case,
arguing the Ant Financial bid is fraught with uncertainties due to
the sensitivity of this kind of cross-border deal in the financial
services sector. Ant isn't saying anything on the matter, but it
does seem almost inevitable that it will launch a counter bid.

The political risk element is certainly a valid one, especially
under the current U.S. Trump administration. But that said, Ant
really wants this particular asset, especially as it wants a good
global story to tell as it prepares for an IPO likely to raise more
than $1 billion as soon as this year. It's hard to know how far the
bidding war will go since we don't know much about Euronet. But I
expect we could see the company make another bid if Ant raises its
initial offer, even though I expect Ant will still emerge as the
winner.

Video Reorganization

Then there's the video news, which has Alibaba formally moving its
Youku Tudou business into Alibaba Pictures. (Chinese article) The move was part of a broader
strategic tie-up between Alibaba's own internal entertainment unit
and Alibaba Pictures, and was announced by the latter's CEO in an
internal memo and also in a public announcement. That memo detailed plans for
sharing of resources, including licensing rights and copyrights,
and said the entire Youku Tudou team will move over to Alibaba
Pictures.

This particular move comes about a month after Alibaba Pictures
warned that it would post a major loss of about 1 billion yuan
($145 million) for last year. We don't know how much money Youku
Tudou is losing at the moment, but it posted a loss of about $70
million in the third quarter of 2015 in one of its final public
disclosures before it was taken private by Alibaba.

The bottom line is that neither of these video companies is
probably earning any profits at the moment, so perhaps Alibaba
wants to consolidate them into a single money-losing entity. The
move also makes sense because Youku was already moving into content
production before it was acquired by Alibaba, so this way it will
have closer contacts with Alibaba Pictures' own content-creating
team.

At the end of the day Alibaba is certainly positioning Alibaba
Pictures to emerge as a leading creator and distributor of filmed
entertainment. The big problem, of course, is that no one has found
a way to make profits from that particular combination. But if and
when anyone does come up with a formula in the future, Alibaba
should be well positioned to thrive in the space.